Changes ahead for debt recovery against individuals

With effect from 1 October 2017 a new Pre-Action Protocol for Debt Claims will come into force.

The new protocol comes as part of the ever increasing encouragement from the Courts for parties to engage in constructive communications with one another, and possibly even pre-action ADR, as well as exchanging information with one another, before the commencement of Court proceedings.

The protocol applies to any business, which includes sole traders, (a creditor) who are claiming payment of outstanding monies from an individual (which also include a sole trader). The Protocol does not apply where the debtor is a business, unless that debtor is a sole trader.

As with the present Protocol on Pre-Action Conduct, the creditor is required to send to the debtor a Letter of Claim (also known as a Letter Before Action) setting out full details of the amount outstanding, and how that has arisen. One of the key changes is the requirement for the creditor to provide the debtor with a reply form – which gives the debtor the opportunity to set out whether they agree they owe all or part of the debt, or whether it is in dispute. If the debtor admits their liability, they are to provide details of how and when payment is to be made. In addition, the creditor is required to provide a financial statement form to be completed by the debtor, which gives information to the creditor of the debtors financial position.

The Creditor is also now required to provide the debtor with 30 days’ notice of their intention to commence court proceedings. So, if the debtor remains silent, the creditor can proceed to commence the claim. For some, the passing of 30 days’ before being entitled to commence proceeding against a debtor may seem unduly restrictive, especially when consideration is given to the detrimental impact bad debts have on a creditor businesses cash flow. The change can only be viewed as the Courts desire to limit the amount of claims that are issued against individuals, and instead to give individuals every opportunity to come to some form of arrangement to pay their indebtedness. The message is clear: court proceedings against individual debtors should be a last resort.

In light of the changes that take effect from 1 October 2017, it would be advisable for all businesses to review their present credit control procedures, to ensure that the new requirement of waiting 30 days from the sending of the letter of claim before commencing court proceedings, does not impact negatively on the creditor’s time frame for collecting in bad debts.

If you would like to discuss how the changes may affect your business and credit control procedures, please contact Gemma Newing.

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Sherrards uses reasonable care to ensure that the content (“Content”) appearing on the Website is current and accurate. The Content does not constitute legal advice and is provided for general information purposes only, without giving any warranty of any kind, either express or implied. The User hereby acknowledges that Sherrards have no control over the use to which the User puts the Content and as such Sherrards cannot and shall not be liable for any loss arising out of the Users (or any third party to whom the User forwards Content) use of, or reliance upon the Content (whether such loss is direct, indirect or consequential).

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